“The vulnerability of elites cuts across emerging markets and advanced economies, democracies and authoritarian states, public and private institutions, and a wide array of issues. This is the challenge: as their legitimacy gets called into question, political actors struggle to react to instability, crises and opportunities in the most effective manner.”

1. Sino-Japanese relations could worsen over the Senkaku-Diaoyu islands and could impact Japan’s economy and place pressure on the U.S. for support.

The dispute over the Senkaku-Diaoyu islands that is escalating is about more than just the territory itself. And this is raising questions about the U.S. pivot to Asia and its ability to delay a conflict in the region.

“For both countries, it is an opportunity to project power in a region that is in transition. And in both countries, domestic political factors are pushing towards escalation: Japan’s government–weakened by economic woes and internal divisions–may want to send a signal that Japan is not a country in terminal decline. In China, a newly installed leadership may find anti-Japanese nationalism the easiest way of gaining popularity.”

2. Violence in Syria is expected to continue and this could further destabilize the region and provide fertile ground for Al Qaeda to reemerge.

Narciso Contreras / AP

The Syrian conflict is expected to continue into 2013. “The turmoil in Syria is already providing fertile ground for a re-emergence of Al-Qaeda.”

Moreover neighboring countries like Turkey, Iran, and Saudi Arabia don’t trust each other and neither wants any of the others to gain an upper hand in the region through their influence on Syria.

Turkey can’t allow Syrian president Assad to crush the uprising and at the same time can’t begin a large-scale military intervention which would give its military a stronger position in domestic politics. And in Iraq, the Kurds and Sunnis could use the turmoil to try and oust Shia prime minister Nuri al-Maliki. “Sectarianism is turning into a self-fulfilling prophecy. If Iraq erupts into civil war, Iran would certainly be drawn in.”

3. Diplomacy could fail and Iran-Israel-U.S. nuclear standoff could intensify raising concerns of strikes on Iran.

The U.S. has a chance at using diplomacy to check Iran’s nuclear programme. First, international sanctions on Iran appear to be working. Second, the Iranian presidential election will likely see a new president that could create a more conciliatory tone in U.S.-Iran relations. But it is just as likely that tensions between Iran, and Israel and the U.S. will intensify.

“In any negotiations, Tehran would be seeking a grand bargain that includes not only its nuclear programme but also regional stability (for example the role of Hezbollah), the future of Syria and relations with Israel. However, Washington might not be able to negotiate such a deal.”

4. Afghanistan could once again face turmoil as the U.S. withdraws its troops, and the country risks a resurgence of milita and the Taliban.

As the U.S. prepares to withdraw its troops, it remains to be seen if the Afghan national forces can guarantee security. Hamid Karzai’s administration might not be able to survive without the support of the U.S. and NATO support.

“The risks to Afghanistan’s transition lie in the complex militia structures that dominate the region, and the Taliban’s continuing ability to be vastly destructive.”

Moreover, the Indo-Pak rivalry could destabilize the situation in the country. India is helping train Afghan security forces and is strengthening its ties with the Northern Alliance while Pakistan is supporting the Pashtun tribes.

5. Reliance on the European Central Bank for help could backfire and voters could turn to euro-skeptic parties.

The inability of European governments to respond to the region’s sovereign debt crisis has left the European Central Bank (ECB) as “the only effective actor”.

“Central banks are neither democratically legitimized nor democratic” and while countries like Spain are looking for ECB help, countries like Germany are concerned about the expanding role of the ECB.

Moreover, governments in Germany, Austria, the Netherlands, and Finland are finding it harder to convince their parliaments to bailout countries like Italy and Spain. This risks turning voters on to “euro-skeptic or nationalist parties, such as the True Finns in Finland or Austria’s Freedom Party”.

The report also highlights two opportunities in this environment. Namely the stabilizing effect of Obama’s reelection and local fixes to problems.

“As risk becomes increasingly de-globalized, it creates problems but also opportunities. Since risks are not global, world powers, most notably the US, are less likely to get engaged militarily. Knowing this, local actors may assume more responsibility for solving conflicts that affect them directly, rather than waiting for outsiders to step in.

…In other words, if ‘the new local’ means an out-sized focus on regional and domestic issues, perhaps the extra attention can bear fruit.”

1. The re-election of President Obama could be a stabilizing factor.

“The re-election of Barack Obama as American president promises a certain amount of continuity in U.S. foreign policy. This should be a stabilizing factor globally.” The Obama administration also has the opportunity now to move beyond the war on terror and drugs and focus on foreign policy in Asia.

As the U.S. economy recovers it could forge better foreign trade diplomacy as well.

2. In the absence of global coordinated leadership policymakers will be able to make progress at the local level.

“In the world of ‘the new local,’ where increasingly vulnerable political elites have their hands full with issues in their own neighborhoods, we won’t see resolution on big-ticket items like climate change… In ‘the new local,’ finding more localized fixes to problems will prove the way forward.”